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Economic Development Financing Tools 101

Economic Development Financing Tools 101. Tax Increment Financing (TIF). Generic term for using future tax revenue to pay for something today Usually used for public elements of private development project (i.e. infrastructure)

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Economic Development Financing Tools 101

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  1. Economic Development Financing Tools 101

  2. Tax Increment Financing (TIF) • Generic term for using future tax revenue to pay for something today • Usually used for public elements of private development project (i.e. infrastructure) • Usually used to bridge the “but for” gap between project cost and project revenue • Rules and uses vary from state to state, some very aggressive • North Carolina on the conservative end of spectrum.

  3. What is Tax Increment? • The increase in taxes collected on a specific parcel from one year to the next. • Example: • Year 1 = $100,000 collected in taxes on vacant land • Year 2 = $275,000 collected in taxes from new project • The Tax Increment is $175,000 • In North Carolina, the Tax Increment can be used two ways: • Debt • Reimbursement

  4. Tax Increment Used as Debt • City issues bonds backed by projected TIF • City uses bond proceeds to construct public improvements • City will likely need secondary source to backstop if project fails to meet projections • Typically more expensive debt than general obligation debt • Costs include having project valued and bonds marketed • Allows City to build without impacting tax rate or capital budget • Risk is City will have to cover bonds

  5. Tax Increment Used As Reimbursementaka “Synthetic TIF” (STIF) • Developer finances and constructs required improvements • City designates a portion of annual tax increment to reimburse developer for eligible costs • Generally capped by time and total amount • (e.g., Ten years or full reimbursement, whichever is first) • Developer carries all risk • Can be used creatively – not just road and sewers • Charlotte reimbursing developers for operating losses on needed parking decks; construction of cultural facilities

  6. Charlotte STIF Policy • Each City can set their own policy • Charlotte’s Policy • Will reimburse 90% of tax increment in targeted neighborhoods and for critical projects • Will reimburse 45% of tax increment in non-challenged neighborhoods • Mecklenburg County usually participates at % set by city • No more than 3% of City tax base can be subject to STIF collection

  7. Municipal Services District • Enabled and regulated by North Carolina General Statutes • Allows designated “special tax districts” where property owners pay additional tax • Additional tax revenue must be used within in the district • Can be used for • Physical infrastructure • Marketing • Grant programs like façade improvements • Cultural / public facilities

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